Netflix was long ‘a builder not a buyer.’ Is that era over?

For years, Netflix top brass would tell investors they were builders not buyers. Now, that sentiment toward growth may be changing.

On Thursday Netflix reported its quarterly earnings. Typically, Netflix’s earnings calls are focused on metrics like engagement, content spending, price hikes and membership. While those factors were still present on Thursday’s call, analysts were also questioning Netflix’s merger and acquisition aspirations following the Warner Bros. Discovery sale process.

Late last year, Netflix emerged as a bidder for WBD, surprising many in the industry and market. Even more stunning was an announcement in December that Netflix had reached a deal to acquire WBD’s film studio and streaming assets in a $72 billion deal.

While the transaction initially raised eyebrows, it’s now opened the door to questions from media onlookers and insiders about whether the company needs to pursue other deals as streaming becomes more competitive.

Netflix co-CEO Ted Sarandos said Thursday that questions also arose both internally and externally about the company’s ability to do such a mega deal.

“What we did learn, though, was that our teams were more than up to the task,” said Sarandos. “We’ve learned so much about deal execution, about early integration.”

Netflix had said its reasoning was simple for the pivot toward a big acquisition. Despite being the largest streaming service by far when it comes to subscribers — 325 million paid global members reported in January — it wanted to deepen its bench of franchises and intellectual property, and get more squarely in the movie studio business.

Paramount Skydance ultimately upended the deal in February with a superior bid, and Netflix walked away (collecting its $2.8 billion breakup fee in short order).

“But mostly, we really built our M&A muscle,” Sarandos said. “And the most important benefit of this entire exercise, though, was that we tested our investment discipline.”

Sarandos’s newfound openness to M&A has left some wondering whether the streaming giant could be on the lookout for new targets.

After all, its library of intellectual property and its relationship to the movie studio business are still right where they were before it took on the WBD deal.

Although Wall Street was clearly not a fan of Netflix’s proposed acquisition of WBD — shares fell 15% between the announcement of the deal and the day it fell apart, and have since risen about 26% — the media landscape will be undeniably different if Paramount’s takeover is approved.

Paramount is seeking to buy the entirety of WBD’s business — cable TV networks, film studio, streaming and all. That would create a behemoth of a competitor for Netflix and its media peers on various fronts.

“The way the WBD cards fell matters a lot. A probable combination of Paramount+ and HBO Max changes the streaming landscape in ways Netflix hasn’t really had to contend with before,” said Mike Proulx, vice president and research director at Forrester, prior to Netflix’s earnings release.

“I just want to remind you that we said this from the beginning that the WB deal was a nice to have, not a need to have. We are very confident in the core business,” Sarandos said on Thursday. He added that Netflix viewed its biggest risk going into the deal process as losing focus on its core business.

“As you can see from our Q1 results, we did not lose focus,” he said.

Still, Netflix’s earnings report, and particularly its forward-looking guidance, seemed to disappoint investors.

The company’s stock dropped roughly 10% in extended trading after the streamer maintained full-year guidance despite a first-quarter revenue beat and the termination of the WBD deal.

“The bigger surprise this quarter was the unchanged full-year margin guidance despite walking away from the Warner Bros. deal and related M&A costs,” said analyst Robert Fishman of MoffettNathanson in a research note on Friday.

Netflix, for its part, didn’t spend too much time on M&A during the earnings call, instead focusing on its more familiar talking points like user engagement, a growing advertising business, and spending on content that holds onto members (and helps justify price hikes).

The return to Netflix’s typical narrative appeared to be welcome.

“Post WBD, the company could return to its relentless focus on growing revenue and profits by leveraging its global subscriber scale,” said Fishman in Friday’s note. He added that Netflix management “emphasized the success of its recent price increases and noted that retention was strong,” as well as that it remains on track to double ad revenue this year.

Still, Proulx of Forrester said in a note after the earnings call that while Netflix was back to being “squarely focused on executing its tried‑and‑true playbook,” questions still remained.

“None of that changes the reality that the streaming market is more competitive than it was a year ago,” Proulx said. “Pricing power has to be earned quarter by quarter, and holding engagement as prices rise remains the central challenge across the streaming market. Netflix is betting that steady execution on its core business wins in a more crowded, consolidating market.”